David Stahl
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The Bull And Bear Cases For Nike

Deutsche Bank recently held a bull versus bear debate with an athletic sector expert. Here’s an overview of the bull and bear cases for Nike Inc .

Bull Case

  • The North American business still has another leg up.
  • ASP growth remains strong.
  • The North American full-price channel is cleared, and the company is working on clearing the factory/value channel as well.
  • Shifted emphasis on DTC, apparel and foreign markets has created an unparalleled gross margin expansion opportunity.
  • Nike’s business is tied to a growing middle class in emerging markets, and global sports participation is on the rise.
  • The stock’s 10.8 percent 2016 pull-back is an opportunity to buy the dip.
  • Government policies in China support athletics.

Bear Case

  • Competition from Under Armour Inc  and others in the North American market is heating up.
  • ASP growth has slowed in the past year.
  • Inventory positions in Greater Europe, Greater China and Japan worsened in Q4.
  • Q4 gross margins came up well short of consensus analyst expectations.
  • International markets are a long-term growth driver, but the company needs a short-term catalyst to maintain its momentum.
  • The stock’s pre-momentum valuation implies more than 20 percent downside ($43–48).
  • Economic growth in China is slowing.

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